Developing markets could lift UnionPay

UnionPay, China's state-run card network with a near monopoly over the country's payment card ecosystem, is eyeing developing markets as it looks to expand and grow outside of the Chinese market, according to reports from the Financial Times.

"Ground-zero" for that push is Myanmar, but the firm is also building up a robust presence in Indonesia, Malaysia, Kazakhstan, and the Democratic Republic of Congo.

Moving into these markets could give UnionPay an early mover advantage. In these markets, card penetration is low. In Myanmar, just 2% of adults have payment cards, according to the Financial Times, as an example. By moving into the space early, UnionPay could gain near ubiquity in these markets, beating out competition. That said, the firm will have to work with banks and issuers to set up payment card infrastructure in these markets, which can be costly and challenging.

And that could help it improve its positioning in two categories as new threats emerge.

Mobile payment providers: Developing markets often evolve directly from cash to mobile payments because of infrastructure-based hurdles, especially in markets that have high phone usage despite low card penetration. That's leading Chinese mobile payment giants, like Alipay, to invest in developing markets in order to realize global growth targets. But these players are already eating into UnionPay's business at home, so trying to erode their competitive advantage abroad could be a smart growth tactic.

Global issuers: In 2015, the latest year for which issuer market share is available, UnionPay was the largest single card network worldwide. But that's largely due to its presence in China — when China is removed, UnionPay's market share dips to just 0.5%. Soon, Visa, MasterCard, and other foreign networks will launch domestically in China, which could stiffen competition in UnionPay's most valuable market. Expanding into high-growth international markets could help it stay a more formidable competitor.

The U.S. payments ecosystem is in the midst of a shift toward mobile, and countless new and old stakeholders are attempting to accelerate this migration, which is moving at a glacial pace relative to other markets globally. But mobile payments can rise to the mainstream. For companies seeking to build out a robust mobile payments product, China's thriving mobile payments ecosystem offers some insight — and some lessons.

Total mobile payments volume in China will reach $6.3 trillion by 2020, according to our estimates based on iResearch data. This marks a healthy 33% five-year compound annual growth rate (CAGR). In comparison, the U.S. will generate $154 billion in mobile payments volume this year by our estimates, which amounts to just 6.5% of China's mobile payments volume.

Even accounting for population discrepancies, China will generate over $1,700 in mobile payments volume per capita in 2016, compared with $475 in the U.S., based on forecasts from BI Intelligence and eMarketer. China's advantage will eventually diminish, but it will still produce around twice as much volume per capita in 2020.

China has unique factors buoying the industry, like the dominance of mobile phones, a lack of legacy infrastructure, and the surging popularity of digital retail marketplaces. Some of the characteristics behind the country's success can be mimicked, or even replicated to some extent, in other markets like the U.S. However, one fundamental barrier in the U.S. is that it's being forced to layer mobile payments on top of an existing payments system, and the ecosystem is very fragmented.

China claims the world's largest mobile payments market and serves as the global benchmark for other markets to pursue.China will process a whopping $6.3 trillion in total mobile payments by 2020, according to our estimates based on iResearch data. This marks a healthy 33% five-year compound annual growth rate (CAGR).

It dwarfs the U.S.' mobile payments industry.The US will generate $154 billion in mobile payments volume this year by our estimates, which equates to just 6.5% of China's mobile payments volume.Meanwhile, China will generate over $1,700 in mobile payments volume per capita in 2016, compared with $475 in the U.S., based on forecasts from BI Intelligence and eMarketer.

Mobile commerce, a lack of legacy infrastructure, and marketplaces have fueled China's enormous success.Consumers in China are much more comfortable shopping on their mobile phones compared with their counterparts in the U.S., and the devices face less resistance from other legacy payments methods like credit cards. The open approach to mobile shopping has been fortified by Alibaba, a Goliath-sized marketplace, and WeChat, a go-to messaging platform, which support Alipay and Tenpay, respectively.

Overviews the key competitors in China's mobile payments market, and how new entrants may shuffle the hierarchy of dominant players.

Uncovers the key drivers propelling China's mobile payments market.

Identifies which drivers the U.S. can import from China, and which barriers may be standing in the way.

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